"My goal is for my children to always be happy, to never experience pain, or sadness, or disappointment. To always get what they want, and to never have to hear the word ‘No.’" ...But spoiled kids take greater and greater risks, do dumber and dumber things, because there are never any consequences for their actions.
"I don’t see a reason [for the ECB not to buy stocks]" said Joseph Gagnon, senior fellow at the Peterson Institute for International Economics. "It isn’t obvious to me why a central bank wouldn’t always want a diversified portfolio, including equities."
What was most striking in the latest Triennial BIS survey, was the shrinkage in FX trading by hedge funds and proprietary trading firms which fell by more than 30% over the past three years. The shrinkage in the share of FX trading by these investors is likely the result of regulatory pressures and FX rigging investigations which caused significant retrenchment by FX prop desks.
The return from summer holidays has started in much the same way as we left off August, with another subdued session that has seen European stocks little changed, Asian shares advance and S&P futures are modestly in the green amid a flurry of M&A. The US dollar weakened, with the Bloomberg Dollar Index down 0.2% for the 2nd day in a row as prospects for a U.S. interest-rate hike this month remained subdued.
Just a month after Japan ordered its military to a "state of alert," and as world leaders gather in China for the G-20 summit, AP reports that North Korea fired three ballistic missiles off its east coast Monday, Japanese Prime Minister Abe "strongly condemned" the actions, as the missiles fell into Japan's air defense zone, declaring the launch a clear violation of UN Security Council resolutions.
As momentum builds in the developing deflationary spiral, we are seeing increasingly desperate measures to keep the global credit ponzi scheme from its inevitable conclusion. Credit bubbles are dynamic - they must grow continually or implode - hence they require ever more money to be lent into existence. As the peak of a credit bubble is reached, all these necessary factors first become problematic and then cease to be available at all. Past a certain point, there are hard limits to financial expansions, and the global economy is set to hit one imminently.
“We see much more that can drag the market down than we see positive surprises. We can’t see where they could come from. It’s not yet like 1999 as far as valuation goes, but there are indications of a bubble. Now we’ve emptied the six shooter in all areas - the rate is zero, a lot of QE, pricing is up and growth is the same - it’s more challenging now.”
An ECB board member warned against using "academic proposals that prefer sophisticated models to social psychology." Warning that "we cannot fulfill our mandate with mathematical equations, but only with instruments that maintain trust in the currency" and that "extreme measures or legal violations of our mandate aren't among those instruments."
Since July of 2011, two of the largest and most important asset classes in the world, US Treasury debt and gold valuations, have been moving in contradiction to supply and demand data. US Treasury rates have fallen by a third since the vast majority of previous buyers since have ceased accumulating... and gold has fallen about 25% on increasing physical demand. These are simply not the hallmarks of a free market. However, the only thing investors should be more afraid of than a free market correction or potential market crash is the absence of free markets...
"...the world’s economies are cascading, there is civil unrest throughout Europe, civil unrest is developing in the United States, the U.S. government and the nations’ governments are preparing for disaster and war, and powder-kegs exist in Syria, Ukraine, and with North Korea that can be touched off at any time..."
On the verge of running out of bond to monetize, the ECB has engaged in something fed had expected: it is buying bonds from itself. But according to a troubling Reuters "trial balloon" that may be just the beginning: as Reuters writes, the "ECB may soon be forced to follow the Bank of Japan's example and buy equities as part of any expanded stimulus programme."
The much anticipated payrolls day, expected to provide at least some more clarity on future Fed policy, has arrived and heading into today's report both price action and newsflow has been muted. U.S. equity index futures were fractionally higher, as European stocks rise 0.6% while Asia was flat. Gold fell as the dollar rose, while comments by Vladimir Putin which endorsed an OPEC oil production freeze while granting Iran an exemption, have pushed oil higher.